Wage Compensation for S Corporation Officers FS-2008-25, August 2008 Corporate officers are specifically included within the definition of employee for FICA (Federal Insurance Contributions Act), FUTA (Federal Unemployment Tax Act) and federal income tax withholding under the Internal Revenue Code.
Who are the S corporation officers and shareholders?
Courts have consistently held S corporation officers/shareholders who provide more than minor services to their corporation and receive, or are entitled to receive, compensation are subject to federal employment taxes.
What makes an officer an employee of a corporation?
Generally, an officer of a corporation is an employee of the corporation. The fact that an officer is also a shareholder does not change the requirement that payments to the corporate officer be treated as wages.
When is an officer not considered an employee?
If an officer does not perform any services or only performs minor services and is not entitled to compensation, the officer would not be considered an employee.
How are payments to corporate officers treated by the IRS?
IRS Form 1120S, “Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.”
How is officers compensation reported on a tax return?
Officers compensation for the S corporation is the wages and other compensation paid to the officer. This is deducted from the income to get the net profit of the corporation. The net profit is reported (as discussed above) on the individual shareholder tax return.
What do I need to know about compensation of corporate officers?
You will need to use IRS Form 1125-E – Compensation of Officers, listing compensation for each corporate officer, along with information about the percentage of time devoted to the business and the percentage of stock owned by this officer.
